Share buyback plan to cost Baosteel 5b yuan

Updated: 2012-08-29 10:19

By Gao Changxin and Wang Ying in Shanghai (China Daily)

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Securities regulator says transaction will help boost investor confidence

Baoshan Iron and Steel Co Ltd, the country's biggest steelmaker, plans to spend 5 billion yuan ($786.88 million) to buy back its own shares for no more than 5 yuan a share.

The decision comes after the company's stock value declined to a new low and will make the Shanghai-based steelmaker, commonly known as Baosteel, the country's first blue-chip company to buy back its own shares this year. Analysts have said they expect other companies in the same league to soon conduct similar transactions.

Share buyback plan to cost Baosteel 5b yuan

An advertisement for Baoshan Iron and Steel Co Ltd, also known as Baosteel, in Shanghai. On Tuesday, Baosteel's share price skyrocketed to 4.48 yuan (71 US cents), hitting the daily increase limit of 10 percent on news of a share buyback. [Photo/China Daily] 

Baosteel said it plans to buy back 1 billion of its shares, or 22.8 percent of its publicly traded shares.

In a statement issued to the Shanghai Stock Exchange on Monday, the company said the share buyback is being undertaken "with a view toward safeguarding the interests of shareholders, increasing the confidence of investors and maintaining the company's share price".

Before the announcement of the plan late on Monday, the value of Baosteel shares had decreased by about 16 percent this year, making them trade at about 66.15 percent of the company's book value. During the same period, the Shanghai Composite Index had decreased by 5 percent.

On Tuesday, the news of the buyback gave Baosteel's share price a jolt, bringing it up by the daily limit of 10 percent to 4.48 yuan.

Baosteel's plan comes after the China Securities Regulatory Commission, the country's top securities regulator, said no "legal barriers" prevent Chinese public companies from buying back their shares on the secondary market.

The commission said that it "supports and encourages" companies to buy back shares, saying such transactions help boost investors confidence.

Faith in the market appeared to be in short supply on Monday.

The Shanghai Composite Index that day dropped by 1.74 percent to 2,055.71 points, the lowest level since February 2009, in response to news that the July profits of large industrial companies had decreased by 5.4 percent year-on-year. Even before then, the index had slid by 1.7 percent in June and by 5.3 percent in May.

On Tuesday, the Shanghai index edged up 0.85 percent, or 17.45 points, to 2,073.15 points. Yet, despite those gains, the index is down 2.61 percent this month and 5.74 percent this year.

Securities Times figures show that the price-to-book ratios of 78 companies dropped to below one at the close of the market on Monday, indicating that their shares are being traded below their book values. The companies include China Railway Construction Corp Ltd and carmaker FAW Haima Automobile Co Ltd.

Xiang Weida, chief analyst at Great Wall Securities Co Ltd, expects Baosteel to be the first in a series of blue-chip companies to buy back its shares.

Companies with low price-to-book ratios will be the most likely to follow suit, including some in the oil, coal, highway, real estate and steel industries, he added.

"The buyback will to some extent help the market," he said. "But the market, which is mainly driven by economic expectations, is still under pressure."

Chen Jing contributed to this story.

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